Nigeria’s external reserves saw a significant increase of $7.7 billion, reaching $40.3 billion by November 2024, driven by foreign portfolio investments (FPIs). The surge in FPIs was largely due to Nigeria’s elevated interest rates, which attracted portfolio investors looking to capitalize on the high returns. This reserve rise follows the Central Bank of Nigeria’s (CBN) hawkish monetary policy, which has seen benchmark interest rates increase to 27.5%. Analysts note that foreign portfolio inflows have been instrumental in bolstering Nigeria’s reserves, even as foreign direct investment (FDI) inflows remain subdued.
The CBN’s policy of raising interest rates, aimed at curbing inflation and stabilizing the naira, has created a favorable environment for portfolio investors, despite continued inflationary pressures. Portfolio investments into Nigeria’s equity markets reached $284 million in the first nine months of 2024, marking the highest level since 2020. This influx of foreign capital has made Nigeria’s economy a hotspot for short-term investments, although experts warn that such capital is volatile and may quickly exit if conditions change.
Despite the challenges posed by high inflation and interest rates, analysts at FBNQuest remain optimistic about the continued growth of Nigeria’s external reserves. They anticipate that the steady inflow of capital into the country will sustain the upward trend in gross official reserves. Foreign portfolio investments continue to represent a significant portion of Nigeria’s capital inflows, and the improved foreign exchange system is helping attract more investments, offering easier repatriation of returns. However, caution is advised due to the unpredictable nature of portfolio investment flows.
